The agency has reaffirmed its short-term rating on the debt instruments of Alembic at ‘[ICRA] A1+’.

ICRA said that the reaffirmation of ratings of Alembic (AL) continues to take into accountthe high financial flexibility it derives from its sizeable market value of investments, given its 28.54% stake in Alembic Pharmaceutical (APL), the flagship entity of the Alembic Group, as well as the 19.07% stake in another group entity, Paushak.

The ratings also continue to factor in the strong promoter group, given the presence of Alembic Group across several businesses. Further, ICRA notes the extensive experience of the promoters in operating and managing multiple and diverse businesses in the Alembic Group.

AL’s credit profile is supported by sizeable dividend income generated from the stake in its investee company, primarily APL, which stood at ~32% of its top line and ~60% of its operating profit in FY2023.

AL’s liquidity profile is expected to remain adequateconsidering the healthy buffer in the working capital limitsand the growingrental income. ICRA also draws comfort from the presence of a significant land bank (~102 acres) of the company, which can be monetised in case of exigencies.

Although the company’s ongoing real estate development projects are exposed to some degree of project execution risk, their self-funded nature and AL’s track record of successfully managing its projects, ‘Samsara’ and ‘Veda Phase I’ (residential and commercial), remain a source of comfort.

In addition, a growing rentalincome portfolio (with addition on new lessees)from its commercial real estate projects lends support to AL’s revenue profile.

Going forward, economic downturns,including rising unemploymentand hardening of interest rateson home loans, can impact the operations and cash flows of developers in the real estate sector in general, which might impact the credit risk profile of players like AL.

The company’s active pharmaceutical ingredients (APIs) business continues to remain marginal in the bulk drug space,with operating income of Rs. 26.5 crore in FY2023mainly from job-work activities for Group companies as well as for other pharmaceutical players.

Alembic primarily operates in bulk drugs manufacturing, real estate development (including leased premises), and wind power generation (four windmills with a total capacity of 5 MW) and co-generation power plants (two plants with a total capacity of 6MW) used for the captive consumption of its bulk drugs business. In addition, the company has equity investments in APL (28.54% stake as on 31 December 2023) and Paushak Limited (19.07% as on 31 December 2023).